Five of Hong Kong's virtual banks miss target launch date as coronavirus slows preparations

·4 min read

Five of Hong Kong's virtual banks have missed a target launch date as the coronavirus pandemic drags on preparations, giving breathing space to the city's incumbent banks.

Hong Kong Monetary Authority (HKMA) issued eight virtual bank licences between March and May last year and said that the digital banks would start offering services online within nine months.

The de facto central bank wants to spur financial innovation in the city and catch up with more tech-savvy financial hubs in the US, Europe, Japan and mainland China. When the HKMA was seeking to establish more customer-friendly lenders offering high-interest rates, easy account opening and around the clock service.

However, only ZA Bank, which is owned by mainland online insurer ZhongAn Online P&C Insurance and Sinolink Group, is operational after completing a three-month trial last month.

"The outbreak of Covid-19 has inevitably affected the virtual banks' preparation for the launch of the business," said an HKMA spokeswoman in a written statement.

Two of the virtual banks started pilot trials last week: Ant Bank, operated by Ant Financial Services, part of Alibaba Group Holding which owns the South China Morning Post, and Airstar Bank, a joint venture between mobile maker Xiaomi Hong Kong and Hong Kong-headquartered financial services group AMTD.

Mox Bank, a joint venture led by Standard Charted Bank, will start its trial on Thursday, according to its website. The bank's spokeswoman said the outbreak has not affected its launch.

WeLab Virtual Bank, Ping An OneConnect Bank, Tencent-backed Fusion Bank and Bank of China (Hong Kong)-backed Livi Bank " have not given a launch date yet.

Hong Kong virtual lenders tempt rate war as ZA Bank dangles 6.8 per cent

Ping An Insurance (Group), China's largest insurer by market capitalisation, co-CEO Jessica Tan Sin-yin told the Post that she wanted to wait until after the coronavirus outbreak is under control before launching Ping An OneConnect Bank.

"Ping An's virtual bank, Ping An OneConnect Bank has gone through all the tests of systems, and will pick an appropriate time for business launch given the impact of Covid-19 is still evolving," she said in a telephone interview.

Several virtual bank executives told the Post that the outbreak has forced people to work from home, hence slowing testing.

WeLab Bank chairman Chan Ka-keung, however, said his bank's preparation was not affected. "It is complicated to test many systems. However, we work as usual amid the outbreak and we will launch our services when we are ready," Chan said.

ZA Bank, the first virtual bank to start operations in Hong Kong, said the outbreak had not affected its business even though its staff need to work from home.

"The pure online business model of virtual banking can satisfy users' needs that physical branches may fail to address," a ZA Bank spokeswoman said.

Chan Ka-keung, chairman of WeLab on November 27, 2019. Photo: Xiaomei Chen alt=Chan Ka-keung, chairman of WeLab on November 27, 2019. Photo: Xiaomei Chen

The delay launching of virtual banks benefits traditional lenders.

"The pandemic has forced people to stay home, and they need to manage their banking online. This benefits the traditional lenders who can promote their own digital banking services," said Louis Tse Ming-kwong, managing director at VC Asset Management.

HSBC, which did not apply for a virtual bank licence, has opted to expand the number of its digital services instead. Last week, it introduced a digital platform for Hong Kong small-and-medium-sized enterprises to network.

"Digital has become an ever-important means to connect with our SME customers amid the outbreak of Covid-19, as evidenced by the surge in usage of our digital platforms and transactions of online merchants," said Terence Chiu, head of commercial banking, Hong Kong, HSBC.

HSBC's SME customers' online transactions in March increased by 50 per cent over January, while the number of mobile app downloads went up by 80 per cent. The transaction volume of its mobile payment apps PayMe also doubled in the past two months.

James Lloyd, partner and Asia-Pacific fintech leader at accounting firm EY, said that the delay was unlikely to have long-term consequences for the start-ups.

"The question now is whether Hongkongers wait to see the full line-up of virtual banks before trialling with the most attractive offerings, thereby removing any first-mover advantage that may come from initial launch announcements," Lloyd said.

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